Chapter 24
Consumer Protection
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank.
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
1. State consumer protection agencies are charged by Congress with the broadly
stated goal of preventing unfair and deceptive trade practices.
2. Advertising that appears to be based on factual evidence will not be deemed
deceptive even if it is not reasonably supported by evidence.
3. A sanction known as counteradvertising requires a company to advertise anew
to inform the public about earlier misinformation.
4. Advertising that contains an endorsement by a celebrity will not be deemed
deceptive.
5. Deceptive advertising does not occur in the online environment.
6. Puffery constitutes deceptive advertising.
7. The Consumer Product Safety Commission is the primary agency that issues
regulations on food labeling.
8. Labels on fresh meats are not required to indicate where the food originated.
9. Restaurants must post guidelines on the number of calories that an average
person requires daily.
10. The Federal Reserve Board of Governors has issued a regulation that governs
credit provisions associated with sales contracts—Regulation Z.
11. Merchants must issue a refund within a specified period of time when a
consumer cancels an order.
12. The Food and Drug Administration must ensure the safety of new medications.
13. The Consumer Product Safety Commission conducts research on the safety of
individual consumer products and maintains a clearinghouse on the risks
associated with various products.
14. The Food and Drug Administration does not have the authority to directly recall
any food products that it suspects are tainted but must rely on the producers to
recall items.
15. Insurance companies must spend at least 85 percent of all premium dollars
from large employers on benefits and quality improvements.
16. Credit can be denied solely on the basis of race.
17. Account numbers on credit-card receipts must be truncated (shortened).
18. A credit-card company must send monthly bills to cardholders twenty-one days
before the due date.
19. Major credit reporting agencies must provide consumers with free copies of
their own credit reports every six months.
20. A debt-collection agency is someone who regularly attempts to collect debts on
behalf of someone else, usually for a percentage of the amount owed.
MULTIPLE CHOICE QUESTIONS
1. Through careless manufacturing practices, Metalworks Company makes and
distributes unsafe products that are sold to Nabi and other consumers. This
may be subject to sanctions under
a. federal and state law.
b. federal law only.
c. no law, according to the principles of freedom to contract.
d. state law only.
2. Slow-Brew Coffee Company sells coffee and related beverages. The
company’s ad contends that ambitious businesspersons “Drink Us & Rise Up in
the World!’ ” The Federal Trade Commission would consider this ad to be
a. false and misleading.
b. impermissibly vague and general.
c. a deceptive half-truth.
d. none of the choices.
3. SmartPhone Company’s ad states that its product is “The Best that Money Can
Buy.” Because of this ad, the Federal Trade Commission is most likely to issue
a. a cease-and-desist order.
b. a counteradvertising order.
c. a multiple product order.
d. none of the choices.
4. Mouth & Gums, Inc. (CSI), engages in deceptive advertising when it markets its
product Oral Rinse as able to kill germs over long periods of time. In an action
against Mouth & Gums, the firm is ordered to stop its false advertising of Oral
Rinse and other products. This is
a. a counteradvertising order.
b. a multiple product order.
c. a “cooling–off” law.
d. a validation notice.
5. Spicy Salsa, Inc., complains to the Federal Trade Commission (FTC) about an
ad broadcast by Tangy Taco Sauce Company, Spicy Salsa’s competitor. The
FTC investigates and concludes that the ad is deceptive. The FTC’s next step
is to
a. conduct negotiations between the competitors.
b. draft a formal complaint.
c. issue a cease-and-desist order.
d. permit Spicy Salsa to broadcast similarly deceptive counteradvertising.
6. Medi-Insurance Company faxes ads to Nancy and other individual consumers
without the recipients’ permission. This is subject to
a. a cease-and-desist order by the Federal Trade Commission.
b. no sanctions.
c. possible fines by the Federal Communications Commission.
d. rescission on the order of the Federal Reserve Board.
7. Sweet Treats, Inc., wants to market a new snack food. On the product’s label,
standard nutrition facts are
a. prohibited.
b. required.
c. strictly voluntary.
d. warranted by the nature of the food.
8. Under federal law, the calorie content of the food on a menu must be posted by
Organic Mix, LLC, if Organic Mix is
a. a restaurant chain with twenty or more locations.
b. a food distributor with twenty or more customers.
c. a food processor with twenty or more products.
d. a food producer with twenty or more acres.
9. Nature’s Food Market sells groceries. Metro Snacks & Drug Store sells
groceries and fills prescriptions. The party with the chief responsibility to
prevent unsafe food and drugs from being sold is
a. Nature’s Food Market and Metro Snacks & Drug Store.
b. Metro Snacks & Drug Store only.
c. the Federal Trade Commission.
d. the Food and Drug Administration.
10. Grid Tool Company makes and sells tools. One of the tools is believed to be
hazardous. The appropriate government agency may require Grid to
a. export the tool and sell it only abroad.
b. increase the price to cover the cost of any injuries or damage.
c. reduce the price to indicate the hazard to consumers.
d. remove the tool from the market.
11. Grover signs an installment contract with Home Appliance Store to finance the
purchase of new kitchen appliances—stove, refrigerator, dishwasher,
microwave, and toasteroven—for $3,999. This transaction is subject to
a. no federal law.
b. the Fair Credit Reporting Act.
c. the Telecommunications Act.
d. the Truth–in-Lending Act.
12. Tory borrows $10,000 from USA National Bank to remodel a room in her home.
This transaction is subject to
a. no federal law.
b. the Consumer Leasing Act.
c. the Consumer Product Safety Act.
d. the Truth-in-Lending Act.
13. Cecilia borrows $20,000 from Debit & Credit Union to repair her home and to
buy a car. She buys a laptop from eStuf Store in a transaction financed by the
seller. If these parties are subject to the Truth–in-Lending Act, Regulation Z ap–
plies to
a. the car loan only.
b. the home repair loan only.
c. the retail installment sale only.
d. the car loan, the home repair loan, and the retail installment sale.
14. QuikPay Inc. extends credit to consumers. QuikPay is subject to the Equal
Credit Opportunity Act, which prohibits credit discrimination based on
a. intelligence.
b. education.
c. income.
d. race.
15. Jasmine receives an unsolicited credit card in the mail and tosses it on her
desk. Without Jasmine’s permission, her roommate Ilene uses the card to buy
a new tablet for $500. Jasmine is
a. liable for $500.
b. liable for $250.
c. liable for $50.
d. not liable for any amount.
16. In the ordinary course of business, Loan2Buy Corporation offers credit to Mai
and other consumers and reports on the loans to credit agencies. To save time
and money, Loan2Buy generally does not correct or update its reported
information. This is most likely to result in
a. a levy of a nominal fine.
b. an assessment of damages.
c. an order of rescission of the loan contracts.
d. no sanctions.
17. Debt & Loan Collection Agency calls Ethel several times a day, and sometimes
in the middle of the night, about an overdue bill that a Furniture4U store turned
over to Debt & Loan for collection. This is a violation of
a. no federal law.
b. the Fair and Accurate Credit Transactions Act.
c. the Fair Debt Collection Practices Act.
d. the Truth-in-Lending Act.
18. Lucy takes out a student loan from Midtown Bank. When she fails to make the
scheduled payments for six months, Midtown advises her of further action that
it will take. This violates
a. no federal law.
b. the Fair and Accurate Credit Transactions Act.
c. the Fair Debt Collection Practices Act.
d. the Truth-in-Lending Act.
19. Kip opens an account at a Lotsa Goodies Store, and buys a digital music
player and other items, but makes no payments on the account. To collect the
debt, Mako, the manager, contacts Kip’s parents. This violates
a. no federal law.
b. the Fair and Accurate Credit Transactions Act.
c. the Fair Debt Collection Practices Act.
d. the Truth-in-Lending Act.
20. The credit department of Discount Retail Stores Inc. calls Emmett at work
about an overdue bill. Emmett’s employer objects. Discount Retail’s credit
department continues to call Emmett at work. This is a violation of
a. no federal law.
b. the Fair and Accurate Credit Transactions Act.
c. the Fair Debt Collection Practices Act.
d. the Truth-in-Lending Act.
ESSAY QUESTIONS
1. Fastart Corporation makes batteries for motor vehicles. The Federal Trade
Commission (FTC) learns that Gas-Up Auto Parts Stores, a retail company that
sells Fastart’s batteries, engages in deceptive advertising practices. What
actions can the FTC take against Quantum?
2. Candy & Caramel Company wants to sell its products in normal-sized
packages labeled “Super Size.” Darn Yarn, Inc., wants to advertise its sweaters
as having “That Wool Feel,” but does not want to specify on labels that the
sweaters are 100 percent polyester. What stops these firms from marketing the
products as they would like?
